Topic: Tax and Budget Policy

Dice-K Takes American Job

Russell Roberts of George Mason University writes about Japan, China, and the trade deficit scare in the Wall Street Journal. Along the way he notes:

The story of the baseball off-season is the Red Sox spending $100 million to bring Daisuke Matsuzaka from Japan to the United States. Dice-K, as he’s known, is the ultimate import. He takes away a job from an American pitcher.

Russ is mocking the protectionist argument, of course. But he could have drilled in on this point more than he did. We often hear that immigrants “take American jobs.” But really, when America welcomes software engineers from India or magazine editors from England or the laborers who built my house from El Salvador, they don’t necessarily take anybody’s job. An expanding economy–expanding partly because of the immigrants–may well need more engineers, editors, or laborers than it would have needed in the absence of immigration.

But Dice-K actually is taking someone’s job. He’s going to pitch in the major leagues. There’s a fixed number of major league teams, and pretty much a fixed number of pitchers on each team. If the Red Sox hire Dice-K, they’re going to fire or not hire some other pitcher. Probably some good ol’ boy from the American South, whose next best alternative is, yes, being a greeter at Wal-mart. Maybe even one of my Kentucky relatives. Hey, maybe Pat Buchanan’s onto something here…

British Trade Association Warns against Growing Burden of Government

The Institute of Directors is urging the UK government to slow the growth of government in order to protect England from becoming an uncompetitive continental-style welfare state. The group notes that Spain successfully has reduced the burden of government by nearly 11 percentage points of GDP. A smaller burden of spending, the group explains, would facilitate much-needed tax reforms, including a lower corporate rate and the abolition of the death tax. Tax-news.com reports:

As part of its Budget submission, the Institute of Directors (IoD) has warned the UK government that economic policy now stands at a “fork in the road,” and that the level of taxation now stands at a “tipping point” as international companies begin to seek out more tax competitive jurisdictions in increasing numbers. The IoD argues that the UK government now faces a choice of continuing along its present path towards an economy that will mirror that of other EU economies with large governments, or of pursuing polices that aim to reduce the size of the state towards the levels seen in the US, Australia, Ireland and Switzerland, where public spending is between 34% and 37% of GDP. …Miles Templeman, Director General of the IoD commented: “There is nothing inevitable about a rising burden of public spending and taxation. Other countries have achieved huge reductions in the spending to GDP ratio. The UK should take Spanish lessons. Since 1993 public spending in Spain has fallen by 10.8% of GDP – from 48.6% to 37.8% of GDP in 2007. The optimal size of Government in the UK is well below its current size. …Unfortunately, the current size of the state in the UK is not globally competitive.” …The Institute also called on the government to consider its previously announced proposals to simplify the capital gains tax system and abolish inheritance tax, while calling for the proposed planning gain supplement to be abandoned.

European Commission Pushes Hypocritical Regulatory Message

The bureaucrats in Brussels are infamous for promulgating directives that add to the regulatory burden in European Union nations. Yet the same bureaucrats are pressuring national governments to adopt deregulation targets. This do-as-I-say-not-as-I-do message certainly rings hollow, though European consumers would benefit if politicians reduced red tape. The EU Observer reports:

EU leaders have agreed to a somewhat stronger goal on cutting red tape in their national legislation, despite previous reluctance to commit to a reduction of 25 percent of administrative burdens. …The move comes after last-minute pressure from the European Commission, urging governments to make a clear commitment to cut national bureaucracy which accounts for half of the bloc’s administrative costs. …Brussels believes red tape reduction would boost the EU economy by the equivalent of 3.5 percent of GDP and free up an estimated €150 billion for investment but only if national targets are included.

Will Halliburton Escape America’s Bad Tax System?

Some politicians are denouncing Halliburton for moving its headquarters to Dubai, but this is not a full-fledged corporate “expatriation.” Halliburton is only moving its headquarters, not its place of incorporation. Under US tax law, Halliburton will continue to be taxed on its worldwide income so long as the company is still chartered in Delaware. The move does not save the company one penny, at least from a tax perspective. To advance the interests of shareholders, however, the company should seek to change its place of incorporation. America’s worldwide tax system, combined with a high corporate tax rate, make it very difficult for multinational companies to compete in global markets. Unfortunately, it is now increasingly difficult to escape the Berlin Wall of American taxation, though Halliburton executives presumably are looking at the options. The politicians, meanwhile, should stop demagoguing the company and instead lower the coporate rate and shift to a territorial tax regime so that American companies can compete on a level playing field. ABC News reports:

The much-maligned defense contractor Halliburton is moving its corporate headquarters from Houston to Dubai in the United Arab Emirates. …Sen. Patrick Leahy, D-N.H., called the company’s move “corporate greed at its worst.”  …Fellow Democratic Rep. Henry Waxman, D-Calif., who chairs the House Oversight and Government Reform Committee, which has investigated contractor fraud, is planning to hold a hearing. “This is a surprising development,” he said. “I want to understand the ramifications for U.S. taxpayers and national security.”

When Governments Lobby Government, Taxpayers Lose

John Fund has a rather depressing article at the Wall Street Journal’s opinionjounal.com. He explains how governments - including universities and Indian tribes - are exempt from restrictions on lobbying. Yet these are some of the groups that specialize in feeding at the public trough. The real problem, of course, is that government is too big. So long as politicians are confiscating and redistributing about $3 trillion, interest groups will figure out ways of steering other people’s money in their direction:

….lobbyists visiting Capitol Hill are bound by House and Senate ethics rules that cap most individual gifts at $50 per elected official or staffer, with an annual limit of $100 per recipient from any single source. But local governments, public universities and Indian tribes are exempt from the limit, so they are able to shower members and their staffs with such goodies as luxury skybox tickets to basketball games and front-row concert tickets. Having members or their key aides attend such free events in the company of glad-handing university presidents and local government officials winds up costing taxpayers a pretty penny. Much of the explosive growth in earmarks has been directed to local governments and universities. …Universities and colleges spent at least $75 million in 2005 on lobbying according to a study by USA Today. The Chronicle of Higher Education reports that $2 billion in grants flowed into higher education in 2003. …The same lobbying rules that apply to private-sector lobbyists should also apply to taxpayer-funded government lobbyists. …Disgraced lobbyist Jack Abramoff once told me that he built his lobbying business in such a way that all his major clients were Indian tribes and local governments, in part because he knew he could wine and dine power brokers on Capitol Hill without breaking any laws.

So-Called Consumer Protection Law Hurts Consumers

Headline-seeking politicians like to enact laws that ostensibly protect consumers from predatory businesses. Item-pricing laws are a good example. They supposedly exist to protect consumers from being overcharged by unscrupulous grocery stores, even though research shows that stores are just as likely to make mistakes that benefit consumers. Requiring individual price tags, though, is an unambiguous negative for shoppers, raising prices by as much as 10 percent because of added labor costs. A column in the Wall Street Journal explains:

New York and several other states (California, Illinois, Massachusetts, Michigan, New Hampshire, North Dakota, Rhode Island and sometimes in Connecticut) have an “Item Pricing Law” (IPL) requiring that, for most goods in retail stores, each item have its own individual price sticker; in other states a simple price tag on the shelf is considered sufficient. …Prices in IPL stores are 20 cents to 25 cents higher per item than in non-IPL stores. …The maximum estimate of the benefit of avoiding overcharges to consumers through IPLs is less that one cent per item. …The laws are a bad deal for consumers. How significant are these price differences – about a quarter per item? The average price of the items in our sample was about $2.50, so there is a 10% difference. This implies that prices of groceries are almost 10% higher in IPL stores. Food represents about 14% of the average family’s budget. IPLs, therefore, reduce the real incomes of families by more than 1% – a nontrivial amount. In sum, our study shows that IPLs impose net costs on consumers much greater than any potential benefit. Jurisdictions without them should not pass them, and jurisdictions with them should repeal them. In New York City, where costs and so prices are already very high, consumers would greatly benefit from a 10% reduction in grocery prices.

Net Worth Climbs to Record Level

New figures from the Federal Reserve show that household wealth in America is now more than $55 trillion. This is worth noting, both because it illustrates the tremendous wealth generated by an economy when tax rates are low and the burden of government is modest (at least compared to most of our friends in Europe) and because it should relieve some of the anxiety of people who fret that Americans do not save enough. To be sure, there are many households who do not have assets, and there are many government programs and tax policies that discourage saving, but there is not a crisis of inadequate savings in America. Investors’ Business Daily offers a cheerful assessment of the economy:

In the fourth quarter of 2006, total net worth — that is, everything people own minus what they owe — jumped 7.4% to $55.63 trillion. We’ve added as much wealth in the last decade as we did in our nation’s first 220 years. … the average household in America owns about $487,095 worth of stuff, free and clear. That’s a big jump from recent years. As recently as 2001, average household wealth was $373,170. So in five years we’ve become a third richer — a truly amazing fact. … Unemployment, at just 4.5%, is way below its long-term average. Real incomes are rising strongly. Inflation remains tame. Company profits — a measure of how efficient businesses are at using scarce resources — are at all-time highs. And, in addition to being richer, we live longer, healthier lives than ever. Even people on the lowest rungs of the economic ladder have far more than they did a decade ago.